1

INTRODUCING STRATEGY

Learning outcomes After reading this chapter you should be able to:

● Explain what ‘strategy’ is about.

● Summarise the strategy of an organisation in a ‘strategy statement ’.

● Identify key issues for an organisation’s strategy according to the Exploring Strategy model.

● Distinguish between corporate , business and operational strategies.

Key terms

Business-level strategy p. 6 Corporate-level strategy p. 6 Exploring Strategy Model p. 9

Managing strategy in action p. 13 MyStrategyLab is designed to help you make the most of your studies. Operational strategies p. 7 Visit www.mystrategylab.com to discover a wide range of resources specific to this chapter, including: Strategic choices p. 12 • A personalised Study plan that will help you understand core concepts. Strategic position p. 11 • Audio and video clips that put the spotlight on strategy in the real world. Strategy p. 2 • Online glossaries and flashcards that provide helpful reminders when Strategy statements p. 7 you’re looking for some quick revision. Three horizons framework p . 3 See p. xiv for further details.

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1.1 INTRODUCTION

trategy is about key issues for the long-term future of organisations. For example, how S should Google – originally a search company – manage its expansion into the mobile phone industry? Should universities concentrate their resources on research excellence or teaching quality or try to combine both? How should a small video games producer relate to dominant console providers such as Nintendo and Sony? What should a rock band do to secure revenues in the face of declining CD sales? All these are strategy questions. Naturally, they concern entrepreneurs and senior managers at the top of their organisations. But these questions matter more widely. Middle managers also have to understand the strategic direction of their organisations, both to know how to get top management support for their initiatives and to explain their organisation’s strategy to the people they are responsible for. Anybody looking for a management-track job needs to be ready to discuss strategy with their potential employer. Indeed, anybody taking a job should fi rst be confi dent that their new employer’s strategy is actually viable. There are even specialist career opportunities in strategy, for example as a strategy consultant or as an in-house strategic planner, often key roles for fast-track young managers. This book takes a broad approach to strategy, looking at both the economics of strategy and the people side of managing strategy in practice. The book is also relevant to any kind of organisation responsible for its own direction into the future. Thus the book refers to large private-sector multinationals and small entrepreneurial start-ups; to public-sector organisations such as schools and hospitals; and to not-for-profi ts such as charities or sports clubs. Strategy matters to almost all organisations, and to everybody working in them.

1.2 WHAT IS STRATEGY?1

ystrategyla .m b. In this book, strategy is the long-term direction of an organisation. Thus the long-term direction w co w m w KEY of Nokia is from mobile phones to mobile computing. The long-term direction of Disney is from CONCEPT cartoons to diversifi ed entertainment. This section examines the practical implication of this defi nition of strategy; distinguishes between different levels of strategy; and explains how to Strategy summarise an organisation’s strategy in a ‘strategy statement’.

1.2.1 Defining strategy

Defi ning strategy as the long-term direction of an organisation implies a more comprehensive view than some infl uential defi nitions. Figure 1.1 shows the strategy defi nitions of three leading strategy theorists: Alfred Chandler and Michael Porter, both from the Harvard Business School, and Henry Mintzberg, from McGill University, Canada. Each points to important but distinct elements of strategy. Chandler emphasises a logical fl ow from the determination of goals and objectives to the allocation of resources. Porter focuses on deliberate choices, difference and competition. On the other hand, Mintzberg uses the word ‘pattern’ to allow for the fact that strategies do not always follow a deliberately chosen and logical plan, but can emerge in more

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Figure 1.1 Definitions of strategy

Sources : A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise , MIT Press, 1963, p. 13; M.E. Porter, ‘What is strategy?’, Harvard Business Review , 1966, November–December, p. 60; H. Mintzberg, Tracking Strategy: Toward a General Theory , Oxford University Press, 2007, p. 3.

ad hoc ways. Sometimes strategies refl ect a series of incremental decisions that only cohere into a recognisable pattern – or ‘strategy’ – after some time. All of these strategy defi nitions incorporate important elements of strategy. However, this book’s defi nition of strategy as ‘the long-term direction of an organisation’ has two advantages. First, the long-term direction of an organisation can include both deliberate, logical strategy and more incremental, emergent patterns of strategy. Second, long-term direction can include both strategies that emphasise difference and competition, and strategies that recognise the roles of cooperation and even imitation. The three elements of this strategy defi nition – the long term, direction and organisation – can each be explored further. The strategy of News Corporation, * owner of social networking company MySpace, illustrates important points (see Illustration 1.1 ):

● The long term . Strategies are typically measured over years, for some organisations a decade or more. The importance of a long-term perspective on strategy is emphasised by the ‘three horizons’ framework in Figure 1.2 . The three horizons framework suggests that every organisation should think of itself as comprising three types of business or activity, defi ned by their ‘horizons’ in terms of years . Horizon 1 businesses are basically the current core activities. In the case of News Corporation, Horizon 1 businesses include the original print newspapers. Horizon 1 businesses need defending and extending, but the expectation is

* The enquiries into News Corporation’s involvement in telephone ‘hacking’ and its associated govern- ance implications were just under way as this edition of the book was going to press.

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ILLUSTRATION 1.1 MySpace becomes part of a bigger network Social networking site MySpace presents opportunities and challenges for the global media conglomerate News Corporation.

The social networking site MySpace was founded in paid for the original acquisition with money left over. California in 2003 by MBA graduate Chris DeWolfe and Executives summed up MySpace’s distinctive positioning rock musician Tom Anderson. From the first, the net- by saying: ‘Your mom uses Facebook’. working site was strong on music, and helped launch But business then got tougher. Facebook overtook the careers of the Arctic Monkeys and Lily Allen. By MySpace in terms of unique visitors in 2008. News 2005, it had 22 million members, with more page views Corporation executives complained about the excessive than Google. That was the point when the multinational new initiatives at MySpace and the failure to prioritise: media conglomerate News Corporation bought it for DeWolfe and Anderson were even considering launching $580m (A406m). their own film studio. Then Rupert Murdoch announced News Corporation started in Australia in the news- a target of $1bn in advertising revenues for 2008, paper business, acquiring the Times newspaper group without consulting DeWolfe. MySpace missed the target in the United Kingdom and the Wall Street Journal in by about 10 per cent. The push from News Corporation the United States. It also diversified into television to increase advertisements on MySpace, and a reluct- (for example Fox News and BSkyB) and film, including ance to remove pages with advertising from the site, 20th Century Fox, responsible for the hit film Avatar . Its began to make MySpace increasingly less attractive chairman is Rupert Murdoch, whose family owns a con- for users. trolling interest: Rupert Murdoch’s son James is expected During 2009, MySpace’s share of the social network- to succeed him at the top. ing market fell to 30 per cent, from a peak of 66 per cent. In 2005, with media audiences increasingly moving The company missed the online traffic targets set by the to the internet, Rupert Murdoch declared his ambition Google contract. Losses were expected to be around to create ‘a leading and profitable internet presence’. $100m. In March, Chris DeWolfe was removed as Chief The acquisition of MySpace seemed a good fit. Chris Executive of MySpace. The new Chief Executive was Alan DeWolfe and Tom Anderson were retained at the head Van Natta, from Facebook. Van Natta told the Financial of MySpace, but within a new division providing over- Times that MySpace was no longer competing with sight for all News Corporation’s internet interests. Ross Facebook: ‘we’re very focused on a different space . . . Levinsohn, long-time News Corporation insider and head MySpace can foster discovery [of music, films and TV] in of the new division, told the Financial Times: ‘The MySpace a way that others can’t’.

guys were really freaked out that we were going to come Sources : M. Garnham, ‘The rise and fall of MySpace’, Financial Times , in and turn it into Fox News. One of the things we said 4 December 2009; P. Sellers, ‘MySpace Cowboys’, Fortune , 29 August was: “We’re going to leave it alone”’. 2006; S. Rosenbusch, ‘News Corp’s Place in MySpace’, Business Week , 19 July 2005. Some adjustments had to be made. Tom Anderson told Fortune magazine: ‘Before, I could do whatever I wanted. Now it takes more time to get people to agree on things. All the budget reviews and processes. That Questions can be a pain. But it’s not stopping us.’ News Corporation 1 How valuable is MySpace’s distinctive position was able to fund a more robust technology platform in the social networking market? to cope with the thousands of new users MySpace was 2 How should News Corporation have managed getting each day. In 2006, MySpace signed a three-year MySpace? advertising contract with Google worth $900m, which

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Figure 1.2 Three horizons for strategy

Note : ‘profit’ on the vertical axis can be replaced by non-profit objectives; ‘business’ can refer to any set of activities; ‘time’ can refer to a varying number of years. Source : M. Baghai, S. Coley and D. White, The Alchemy of Growth, 2000, Texere Publishers: Figure 1.1 , p. 5.

that in the long term they will likely be fl at or declining in terms of profi ts (or whatever else the organisation values). Horizon 2 businesses are emerging activities that should provide new sources of profi t. In News Corporation, those include the various internet initiatives, principally MySpace. Finally, there are Horizon 3 possibilities, for which nothing is sure. These are typically risky Research & Development (R&B) projects, start-up ventures, test-market pilots or similar, some of which may fuel growth in the future even if most are likely to fail. For a fast-moving internet organisation like MySpace, Horizon 3 might only be a couple of years from the present time. In a pharmaceutical company, where the R&D and regulatory processes for a new drug take many years, Horizon 3 might be a decade ahead. While times- cales might differ, the basic point about the ‘three horizons’ framework is that managers need to avoid focusing on the short-term issues of their existing activities. Strategy involves pushing out Horizon 1 as far as possible, at the same time as looking to Horizons 2 and 3.

● Strategic direction. Over the years, strategies follow some kind of long-term direction or trajectory. The strategic direction of News Corporation is from print to internet media, as represented by MySpace. Sometimes a strategic direction only emerges as a coherent pattern over time. Typically, however, managers and entrepreneurs try to set the direction of their strategy according to long-term objectives . In private-sector businesses, the objective guiding strategic direction is usually maximising profi ts for shareholders. Thus Rupert Murdoch’s acquisition of MySpace was driven by the objective to create a leading and profi table presence on the internet. However, profi ts do not always set strategic direction. First, public-sector and charity organisations may set their strategic direction according to

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other objectives: for example, a sports club’s objective may be to move up from one league to a higher one. Second, even in the private sector, profi t is not always the sole criterion for strategy. Thus controlling families (such as perhaps News Corporation’s Murdoch family) may sometimes sacrifi ce the maximisation of profi ts for family objectives, for example passing down the management of the business to the next generation or exercising infl uence over political affairs and public opinion. The objectives behind strategic direction always need close scrutiny. ● Organisation. In this book, organisations are not treated as discrete, unifi ed entities. Organisations involve complex relationships, both internally and externally. This is because organisations typically have many internal and external stakeholders , in other words people and groups that depend on the organisation and upon which the organisation itself depends. Internally, organisations are fi lled with people, typically with diverse, competing and more or less reasonable views of what should be done. At MySpace, the News Corporation executives clashed over strategic direction with MySpace founder Chris DeWolfe. In strategy, therefore, it is always important to look inside organisations and to consider the people involved and their different interests and views. Externally, organisations are surrounded by important relationships, for example with suppliers, customers, alliance partners, regulators and shareholders. For MySpace, the relationship with Google was critical. Strategy, there- fore, is also crucially concerned with an organisation’s external boundaries : in other words, questions about what to include within the organisation and how to manage important relationships with what is kept outside. Because strategy typically involves managing people, relationships and resources, the subject is sometimes called ‘strategic management’. This book takes the view that managing is always important in strategy. Good strategy involves understanding the managerial context and consequences of strategy, not just the strategic decisions themselves.

1.2.2 Levels of strategy Inside an organisation, strategies can exist at three main levels. Again they can be illustrated by reference to MySpace and News Corporation ( Illustration 1.1 ):

● Corporate-level strategy is concerned with the overall scope of an organisation and how value is added to the constituent businesses of the organisational whole . Corporate-level strategy issues include geographical scope, diversity of products or services, acquisitions of new businesses, and how resources are allocated between the different elements of the organisation. For News Corporation, diversifying from print journalism into television and social networking are corporate-level strategies. Being clear about corporate-level strategy is important: determining the range of businesses to include is the basis of other strategic decisions. ● Business-level strategy is about how the individual businesses should compete in their particular markets (for this reason, business-level strategy is often called ‘competitive strategy’). These individual businesses might be stand-alone businesses, for instance entrepreneurial start-ups, or ‘business units’ within a larger corporation (as MySpace and Fox are inside

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News Corporation). Business-level strategy typically concerns issues such as innovation, appropriate scale and response to competitors’ moves. In the public sector, the equivalent of business-level strategy is decisions about how units (such as individual hospitals or schools) should provide best-value services. Where the businesses are units within a larger organisation, business-level strategies should clearly fi t with corporate-level strategy. ● Operational strategies are concerned with how the components of an organisation deliver effectively the corporate- and business-level strategies in terms of resources, processes and people . For example, MySpace engineers had to keep developing enough processing capacity to cope with the strategy of rapid growth. In most businesses, successful business strategies depend to a large extent on decisions that are taken, or activities that occur, at the operational level. Operational decisions need, therefore, to be closely linked to business-level strategy. They are vital to successful strategy implementation.

This need to link the corporate, business and operational levels underlines the importance of integration in strategy. Each level needs to be aligned with the others.

1.2.3 Strategy statements David Collis and Michael Rukstad 2 at the Harvard Business School argue that all entrepreneurs and managers should be able to summarise their organisation’s strategy with a ‘strategy statement’. Strategy statements should have three main themes: the fundamental goals that the organisation seeks, which typically draw on the organisation’s stated mission, vision and objectives; the scope or domain of the organisation’s activities; and the particular advantages or capabilities it has to deliver all of these . These various contributing elements of a strategy statement are explained as follows, with examples in Illustration 1.2 :

● Mission. This relates to goals, and refers to the overriding purpose of the organisation. It is sometimes described in terms of the apparently simple but challenging question: ‘ What business are we in ?’ The mission statement helps keep managers focused on what is central to their strategy. ● Vision. This too relates to goals, and refers to the desired future state of the organisation. It is an aspiration which can help mobilise the energy and passion of organisational members. The vision statement, therefore, should answer the question: ‘What do we want to achieve ?’ ● Objectives. These are more precise and, ideally, quantifi able statements of the organisation’s goals over some period of time. Objectives might refer to profi tability or market share targets for a private company, or to examination results in a school. Objectives introduce discipline to strategy. The question here is: ‘What do we have to achieve in the coming period? ’ ● Scope . An organisation’s scope or domain refers to three dimensions: customers or clients; geographical location; and extent of internal activities (‘vertical integration’). For a university, scope questions are twofold: fi rst, which academic departments to have (a business school, an engineering department and so on); second, which activities to do internally themselves (vertically integrate) and which to externalise to subcontractors (for example, whether to manage campus restaurants in-house or to subcontract them).

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ILLUSTRATION 1.2 Strategy statements Both Nokia, the Finnish telecommunications giant, and University College Cork, based in the West of Ireland, publish a good deal about their strategies.

Nokia vision and strategy 93 countries. . . . A third of our staff are from overseas. Our strategic alliances with world-ranking universities Our vision is a world where everyone can be connected. in Asia, Europe and North America ensure that we learn Our promise is to help people feel close to what is from and contribute to the best standards of teaching, important to them. learning and research. The businesses of Nokia Vision ● Compelling consumer solutions with devices and To be a world-class university that links the region to services the globe. ● Strong infrastructure business with Siemens Networks Mission Our competitive advantage is based on scale, brand In an environment which gives parity of esteem to and services teaching, learning and research and where students are ● Scale-based assets and capabilities our highest priority, the University’s central roles are to ● Leading brand create, preserve and communicate knowledge and ● Build further competitive advantage by differentiating to enhance intellectual, cultural, social and economic our offering through services life locally, regionally and globally. Our business strategy Targets by 2012 (selected from ‘Teaching, Learning ● Maximize Nokia’s lifetime value to consumer and the Student Experience’) ● Best mobile devices everywhere ● Achieve a first year retention rate of 93 per cent or • Take share and drive value across price brands greater and geographies ● Increase the proportion of students at postgraduate • Enhance and capture market growth in emerging level from 19 per cent to 30 per cent markets ● Increase flexible/part-time provision to 15 per cent ● Context-enriched services of undergraduate entrants • Take share of the internet services market by delivering winning solutions Sources : www.nokia.com ; www.ucc.ie . • Take share of business mobility market Questions University College Cork (UCC), Strategic 1 Construct short strategy statements covering Plan 2009–2012 the goals, scope and advantage of Nokia and University College Cork (UCC) . . . is sited in Ireland‘s University College Cork. How much do the second city . . . UCC’s motto ‘Where Finbarr taught let different contexts matter? Munster learn ’ binds us to the sixth-century monastery 2 Construct a strategy statement for your own and place of learning established by St. Finbarr . . . UCC organisation (university or employer). What was established in 1845 as one of three Queen’s implications might this statement have for Colleges . . . The campus today is home to over 18,000 your particular course or department? students including 2,000 international students from

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● Advantage. This part of a strategy statement describes how the organisation will achieve the objectives it has set for itself in its chosen domain. In competitive environments, this refers to the competitive advantage: for example, how a particular company or sports club will achieve goals in the face of competition from other companies or clubs. In order to achieve a particular goal, the organisation needs to be better than others seeking the same goal. In the public sector, advantage might refer simply to the organisation’s capability in general. But even public-sector organisations frequently need to show that their capabilities are not only adequate, but superior to other rival departments or perhaps to private-sector contractors. Collis and Rukstad suggest that strategy statements covering goals, scope and advantage should be no more than 35 words long. Shortness keeps such statements focused on the essentials and makes them easy to remember and communicate. Thus for News Corporation, a strategy statement might be: ‘to build a leading and profi table presence in both old and new media, drawing on competitive advantages in terms of the scale, diversity and international range of our businesses’. The strategy statement of American fi nancial advisory fi rm Edward Jones is more specifi c: ‘to grow to 17,000 fi nancial advisers by 2012 by offering trusted and convenient face-to-face fi nancial advice to conservative individual investors through a national network of one-fi nancial adviser offi ces’. Of course, such strategy statements are not always fulfi lled. Circumstances may change in unexpected ways. In the meantime, however, they can provide a useful guide both to managers in their decision-making and to employees and others who need to understand the direction in which the organisation is going. The ability to give a clear strategy statement is a good test of managerial competence in an organisation. As such, strategy statements are relevant to a wide range of organisations. For example, a small entrepreneurial start-up will need a strategy statement to persuade investors and lenders of its viability. Public-sector organisations need strategy statements not only for themselves, but to reassure external clients, funders and regulators that their priorities are the right ones. Voluntary organisations need to communicate persuasive strategy statements in order to inspire volunteers and donors. Thus organisations of all kinds frequently publish materials relevant to such strategy statements on their websites or annual reports. Illustration 1.2 provides published materials on the strategies of two very different organisations: the technology giant Nokia from the private sector and the medium-sized University College Cork from the public sector.

1.3 THE EXPLORING STRATEGY MODEL

This book is structured around a three-part model that encompasses issues of economics and people equally. The Exploring Strategy Model includes understanding the strategic position of an organisation; assessing strategic choices for the future; and managing strategy in action . Figure 1.3 shows these elements as overlapping circles, each closely interlinked with the others. However, because this book is about the fundamentals of strategy, it concentrates on the fi rst two elements of position and choice. There is less emphasis on the management issues of strategy in action: on these, the book focuses just on key issues such as managing strategic change and putting in structures and systems to deliver the chosen strategy. Other issues to do

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Figure 1.3 The Exploring Strategy Model

with strategy in action – such as strategic planning and the practice of strategy – are covered more fully in Exploring Strategy. 3 It is important to understand why the Exploring Strategy Model is drawn as interlinked circles. Figure 1.3 could have shown the model’s three elements in a linear sequence – fi rst understanding the strategic position, then making strategic choices and fi nally turning strategy into action. Indeed, this logical sequence is implicit in the defi nition of strategy given by Alfred Chandler (Figure 1.1 ) and many other textbooks on strategy. However, as Henry Mintzberg recognises, in practice the elements of strategy do not always follow this linear sequence. Choices often have to be made before the position is fully understood. Sometimes too, a proper understanding of the strategic position can only be built from the experience of trying a strategy out in action. The real-world feedback that comes from launching a new product is often far better at uncovering the true strategic position than remote analysis carried out in a strategic planning department at head offi ce. The interconnected circles of Figure 1.3 are designed to emphasise this potentially non-linear nature of strategy. Position, choices and action should be seen as closely related, and in practice none has priority over another. It is only for structural convenience that this book follows a

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sequence with its subject matter; the book is not meant to suggest that the process of strategy must follow a logical path of distinct steps. The three circles are overlapping and non-linear, just as strategy often is in real life. Strategy rarely occurs in tidy ways and it is better not to expect it to do so. However, the Exploring Strategy Model does provide a comprehensive and integrated framework for analysing an organisation’s position, considering the choices it has and putting strategies into action. Each of the chapters can be seen as asking fundamental strategy questions and providing the essential concepts and techniques to help answer them. Working systematically through questions and answers provides the basis for persuasive strategy recommendations.

1.3.1 Strategic position

ystrategyla The strategic position is concerned with the impact on strategy of the external environment, .m b. w co w m the organisation’s strategic capability (resources and competences), the organisation’s goals and w KEY CONCEPT the organisation’s culture. Understanding these four factors is central for evaluating future strategy. These issues, and the fundamental questions associated with them, are covered in Strategic Chapters 2 – 4 of this book: position

● Environment . Organisations operate in a complex political, economic, social and technological world. These environments vary widely in terms of their dynamism and attractiveness. The fundamental question here relates to the opportunities and threats available to the organisation in this complex and changing environment. Chapter 2 provides key frameworks to help in focusing on priority issues in the face of environmental complexity and dynamism. ● Strategic capability . Each organisation has its own strategic capabilities, made up of its resources (e.g. machines and buildings) and competences (e.g. technical and managerial skills). The fundamental question on capability regards the organisation’s strengths and weaknesses (for example, where is it at a competitive advantage or disadvantage?). Are the organisation’s capabilities adequate to the challenges of its environment and the demands of its goals? Chapter 3 provides tools and concepts for analysing such capabilities. ● Strategic purpose . Although sometimes unclear or contested, most organisations claim for themselves a particular purpose, as encapsulated in their vision , mission and objectives . The strategic purpose is a key criterion against which strategies must be evaluated. This strategic purpose is infl uenced by both the governance structure of the organisation and its culture . The third fundamental question therefore is: what is the organisation’s strategic purpose; what does it seek to achieve? Applying the Exploring Strategy Model to the positioning of News Corporation ( Illustration 1.1 ) raises the following issues. News Corporation was threatened by an environ- mental shift from print to the internet. It also lacked the capabilities to develop a social networking business on its own. The company was determined to grow its internet business fast, setting demanding objectives that MySpace struggled to meet. Finally, there appeared to be culture clashes between the traditional family-owned conglomerate and the young entre- preneurial start-up.

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1.3.2 Strategic choices Strategic choices involve the options for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be pursued. For instance, an organisation might have a range of strategic directions open to it: the organisation could diversify into new products; it could enter new international markets; or it could transform its existing products and markets through radical innovation. These various directions could be pursued by different methods: the organisation could acquire a business already active in the product or market area; it could form alliances with relevant organisations that might help its new strategy; or it could try to pursue its strategies on its own. Typical strategic choices, and the related fundamental questions, are covered in Chapters 5 to 9 of this book, as follows:

● Business strategy . There are strategic choices in terms of how the organisation seeks to compete at the individual business level . Typically these choices involve strategies based on cost (for example, economies of scale) or differentiation (for example, superior quality). Crucial is deciding how to win against competitors (for this reason, business strategy is sometimes called ‘competitive strategy’). The fundamental question here, then, is how should the business unit compete? Key dilemmas for business-level strategy, and ways of resolving them, are discussed in Chapter 5 . ● Corporate strategy and diversifi cation. The highest level of an organisation is typically concerned with corporate-level strategy, focused on questions of portfolio scope. The fundamental question in corporate-level strategy is therefore which businesses to include in the portfolio. This relates to the appropriate degree of diversifi cation , in other words the spread of products and markets. Corporate-level strategy is also concerned both with the relationship between the various businesses that make up the corporate portfolio of the business and with how the corporate ‘parent’ (owner) adds value to the individual businesses. Chapter 6 provides tools for assessing diversifi cation strategies and the appropriate relationships within the corporate portfolio. ● International strategy. Internationalisation is a form of diversifi cation, but into new geo- graphical markets. It is often at least as challenging as product or service diversifi cation. Here the fundamental question is: where internationally should the organisation compete? Chapter 7 examines how to prioritise various international options and identifi es key methods for pursuing them: export, licensing, direct investment and acquisition. ● Innovation strategies . Most existing organisations have to innovate constantly simply to survive. Entrepreneurship, the creation of a new enterprise, is an act of innovation too. A fundamental question, therefore, is whether the organisation is innovating appropriately. Chapter 8 considers key choices about innovation and entrepreneurship, and helps in selecting between them. ● Mergers, acquisitions and alliances. Organisations have to make choices about methods for pursuing their strategies. Many organisations prefer to grow ‘organically’, in other words by building new businesses with their own resources. Other organisations might develop through mergers and acquisitions or strategic alliances with other organisations.

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The fundamental question here, then, is whether to buy another company, ally or to go it alone. How to choose between these alternative methods is discussed in Chapter 9 . Again, issues of strategic choice are live in the case of News Corporation and MySpace ( Illustration 1.1 ). The Exploring Strategy Model asks the following kinds of questions here. Should MySpace compete against Facebook by emphasising its music strengths? Should a newspaper company diversify into the new social networking market and, if it does, is an acquisition the best method? How should News Corporation add value to its entrepreneurial new business? And should MySpace be allowed to continue to innovate in its old, loosely disciplined style?

1.3.3 Strategy in action Strategy in action is concerned with how chosen strategies are actually put into practice . Chapter 10 covers three key issues for strategy in action:

● Structuring an organisation to support successful performance. A key question here is who is in charge and who is accountable. ● Systems are required to control the way in which strategy is implemented. The issue here is how to ensure that strategies are implemented according to plan. ● Managing s trategic change is typically an important part of putting strategy into action. How should change be led? Strategy in action issues loom large in the MySpace case ( Illustration 1.1 ). For example, should the new business have been integrated into a larger division within News Corporation? Was it appropriate to impose big company systems on a new social networking company? Chapter 10 is an introduction to such important issues of strategy in action. There is also the question of evaluating the strategy behind the MySpace acquisition: Appendix 1 to this book provides a guide to evaluating strategic options, which should be useful for checking recommendations on case analyses or assignments generally. All these issues, and related ones to do with strategic planning and practice, are dealt with more extensively in Johnson, Whittington and Scholes’ Exploring Strategy.

1.4 STRATEGY DEVELOPMENT PROCESSES

The previous section introduced strategic position, strategic choices and strategy in action. However, strategies do not always develop in a logical sequence of analysis, choice and action. There are two broad explanations of strategy development:

● The rational–analytic view of strategy development is the conventional explanation. Here strategies are developed through rational and analytical processes, led typically by top managers. There is a linear sequence. First, the strategic position is analysed; then options are weighed up and choices are made; fi nally, structures, processes and change procedures are put in place to allow effective implementation. Often formal strategic planning systems

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are important to the analysis and formulation of the strategy. In this view, strategies are intended, in other words the product of deliberate choices. This rational–analytical view is associated with theorists such as Alfred Chandler and Michael Porter, in Figure 1.1 . ● The emergent strategy view is the alternative broad explanation of how strategies develop. In this view, strategies often do not develop as intended or planned, but tend to emerge in organisations over time as a result of ad hoc, incremental or even accidental actions. Good ideas and opportunities often come from practical experience at the bottom of the organisation, rather than from top management and formal strategic plans. Even the best laid plans may need to be abandoned as new opportunities arise or the organisation learns from the marketplace. This is a view associated with Henry Mintzberg, referenced in Figure 1.1 .

The two views are not mutually exclusive. Intended strategies can often succeed, especially in stable markets where there are few surprises. Moreover, an organisation’s key stakeholders – employees, owners, customers, regulators and so on – will typically want to see evidence of deliberate strategy-making: it is rarely acceptable to say that everything is simply emergent. The tools and concepts throughout the book are particularly helpful in this deliberate strategy- making. But it is wise to be open as well to the possibilities of emergence. Infl exible plans can hinder learning and prevent the seizing of opportunities. Moreover, strategic choices do not always come about as a result of simple rational analysis: cultural and political processes in organisations can also drive changes in strategy, as will become apparent in the discussions in Chapter 4 . This book allows for both the rational–analytical view and the emergent view. Indeed, the interconnected circles of the Exploring Strategy Model in Figure 1.3 deliberately underline the possibly non-linear aspects of strategy. It is not just a matter of putting strategic choices into action in a logical sequence leading from strategy formulation to strategy implementation. Strategy in action often creates the strategic choices in the fi rst place, as new opportunities and constraints are discovered in practice. Implementation can lead to formulation as well. 4

trateg ys ylab .m .c SUMMARY w o w m w AUDIO ● Strategy is the long-term direction of an organisation. A ‘strategy statement’ should SUMMARY cover the goals of an organisation, the scope of the organisation’s activities and the advantages or capabilities the organisation brings to these goals and activities. ● Corporate-level strategy is concerned with an organisation’s overall scope; business-level strategy is concerned with how to compete; and operational strategy is concerned with how resources, processes and people deliver corporate- and business-level strategies. ● The Exploring Strategy Model has three major elements: understanding the strategic position , making strategic choices for the future and managing strategy in action .

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RECOMMENDED KEY READINGS

It is always useful to read around a topic. As well as the ● For contemporary developments in strategy practice, specifi c references below, we particularly highlight: business newspapers such as the Financial Times , Les ● Three accessible introductory articles on the nature of Echos and the Wall Street Journal and business maga- strategy are M. Porter, ‘What is strategy?’, Harvard Business zines such as Business Week , The Economist , L’Expansion Review , November–December 1996, pp. 61–78; F. Fréry, and Manager-Magazin . See also the websites of the ‘The fundamental dimensions of strategy’, MIT Sloan leading strategy consulting fi rms: www.mckinsey.com ; Management Review, vol. 48, no. 1 (2006), pp. 71–75; and www.bcg.com ; www.bain.com . D. Collis and M. Rukstad, ‘Can you say what your strategy is?’, Harvard Business Review, April 2008, pp. 63–73.

REFERENCES 1. The question ‘What is strategy?’ is discussed in R. Whitting- 4. The classic discussion of the roles of rational strategy for- ton, What is Strategy – and Does it Matter? , International mulation and strategy implementation is in H. Mintz berg, Thomson, 1993/2000 and M.E. Porter, ‘What is strategy?’, ‘The design school: reconsidering the basic premises of Harvard Business Review , November–December 1996, strategic management’, Strategic Management Journal , pp. 61–78. vol. 11 (1991), pp. 171–95 and H.I. Ansoff, ‘Critique of 2. D. Collis and M. Rukstad, ‘Can you say what your strategy Henry Mintzberg’s The Design School’, Strategic Management is?’, Harvard Business Review, April 2008, pp. 63–73. Journal, vol. 11 (1991), pp. 449–61. 3. G. Johnson, R. Whittington and K. Scholes, Exploring Strategy, 9th edition, Pearson, 2010.

M01_JOHN7252_02_SE_C01.indd 15 10/11/11 9:04 AM CASE Glastonbury – from hippy weekend to EXAMPLE international festival

Steve Henderson, Leeds Metropolitan University

Glastonbury Festival has become a worldwide attrac- tion for music fans and artists alike. In 2009, Bruce Springsteen was added to the long list of acts (from Paul McCartney to Oasis) that have appeared at the festival. It started in 1970 when 1,500 hippy revellers gathered on a farm near Glastonbury Tor to be plied with free milk and entertainment from a makeshift stage. Now, Glastonbury is a major international festival that attracts over 150,000 attenders. Without any know ledge of the line-up, the tickets for the 2010 Festival sold out in days. In those early days, the Festival was developed by local farmer, Michael Eavis, whose passion for music and social principles led to a weekend of music as a

means of raising funds for good causes. It was a social Source : Getty Images. mission rooted in the hippy counter-culture of the 1960s and events such as Woodstock. Today, the Glastonbury performances. Much of this is organised into specific Festival attender finds that those early days of hippy grassy field areas where, for example, the Dance Village idealism are a long way off. The scale of the organisation uses a number of tents dedicated to different types of demands strong management to support the achieve- dance music. Indeed, such is the range of entertainment ment of the festival’s social aims. on offer that some attenders spend the whole weekend At first, the statutory requirements for an event held at the festival without seeing a single live music act. on private land were minimal. Jovial policemen looked Though the Eavis family remain involved with the main over hedges while recreational drugs were sold from programme, much of the other entertainment is now tables near the festival entrance as if this was just managed by others. Reflecting this shift towards more a slightly unusual village fête. Needless to say, the diverse entertainment, the name of the festival was festival began to attract the attention of a number of changed from Glastonbury Fayre (reflecting the ancient different groups, especially as legislation around the cultural heritage of the area) to the Glastonbury Festival running of events tightened. Eavis struggled with local for Contemporary Performing Arts. residents who hated the invasion of their privacy; with In some years, the festival is forced to take a year hippy activist groups who felt that their contribution in off to allow the farmland to recover from the trampling helping at the festival gave them a sense of ownership; of thousands of pairs of feet. Not only is this wise on with drug dealers carrying on their activities on the an agricultural front but also gives the local residents fringes of the festival; and fans climbing over the fences a rest from the annual invasion of festival goers. Despite to get free access. this, the festival has met with a number of controversies The festival’s continued expansion has resulted in such as when a large number of gatecrashers spoilt a festival with over ten stages covering jazz, dance, the fun in 2000. This caused the festival to be fined due classical, world music and other genres. Added to this, to exceeding the licensed attendance and excessive there is comedy, poetry, circus, theatre and children’s noise after the event. Furthermore, health and safety entertainment alongside more esoteric street theatre laws now require the event management to have a

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‘duty of care’ to everyone on the festival site. To address where you have perfect freedom and perfect nourish- these health and safety concerns, support was sought ment, intellectually and visually’. Festival Republic, the from Melvin Benn who ran festivals for the Mean Fiddler rebranded Mean Fiddler, created a boutique festival organisation. With a steel fence erected around the on a larger scale with their Latitude festival. Similarly, perimeter, Melvin Benn helped re-establish the festival Rob da Bank, a BBC DJ, put together Bestival on the in 2002 after a year off. Isle of Wight where the attenders are encouraged Ownership of the festival remained with the to join in the fun by appearing in fancy dress. Quite Eavis family but Melvin Benn was appointed Managing clearly, audiences are now being presented with a Director. However, concerns arose in 2006 when his wide range of festivals to consider for their leisure time employer, Mean Fiddler, was taken over by major music entertainment. promoters, Live Nation and MCD Productions. In a Many of these festivals attract sponsors with some worrying move, Live Nation announced that they would becoming prominent by acquiring naming rights on the entice a number of major artists to appear on the festival. Others have low profile arrangements involv- weekend normally used by Glastonbury at a new UK ing so-called ‘contra’ deals as opposed to sponsorship festival called Wireless. Based in London, this seemed payments. For example, Glastonbury has official cider set to offer a city-based alternative to Glastonbury. suppliers who typically boost their brand by giving At much the same time, Live Nation announced that the festival a preferential deal on their products in they would launch their own online ticket agency to exchange for publicity. Though these commercial support the sales of their music events. This shift in relationships are sometimes spurned by the smaller power between the major music promoters indicated festivals that see the branding as an intrusion on their not only their interest in the ownership of key events fun environment, larger festivals often need such re - but their desire to control income streams. lationships to survive. In order to attract sponsors, Elsewhere in the world of live entertainment, the large festivals are turning to radio and television success of Glastonbury had not gone unnoticed and broadcasters as a means to expand the audience and the festival market showed considerable growth. Some offer wider exposure for the sponsor. Indeed, in 2009, of the other festivals tried to capitalise on features that the BBC sent over 400 staff members down to Glastonbury could not offer. For example, Glastonbury Glastonbury for broadcasting aimed at satisfying the was famous for its wet weather with pictures of damp interest of the armchair viewer/listener. revellers and collapsed tents being commonplace. With such huge demand for their talents, artists can Live Nation’s city-based Wireless festival offered the have a lucrative summer moving between festivals. opportunity to sleep under a roof at home or hotel, as Similarly, audiences can make lengthy treks to their opposed to risking the weather outdoors. Alternatively, favourite festivals. For some, this has caused environ- Benicassim in southern Spain offered a festival with mental concerns with Glastonbury’s rural location, an excellent chance of sunshine and top acts for the poor transport links and large audience being cited price of a low cost airline ticket. Other festivals noted as a specific problem. On the other hand, artists are that Glastonbury attenders enjoyed the wider enter- not only finding that the festivals offer a good source tainment at the event. In doing this, they realised that of income but that private parties and corporate many festival goers were attracted by the whole social entertainment have emerged as alternative, often experience. So, sidestepping major acts and their related greater, income opportunities. One newspaper claimed high fees, smaller festivals were created for just a few that George Michael pocketed more than £1.5m thousand attenders. These offered entertainment in (~A1.65m; ~$2.25m) to entertain revellers at the various formats, often in a family-friendly atmosphere. British billionaire retailer Sir Philip Green’s 55th Sometimes described as boutique festivals, Freddie birthday party in the Maldives. Hence, for many artists, Fellowes, organiser of the Secret Garden Party, describes the summer has become a case of ‘cherry picking’ their this type of festival as a chance ‘to be playful, to break down favourite festivals or seeking out the most lucrative barriers between people and create an environment opportunities.

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Over time, the shift from small, homespun event With such an established festival as Glastonbury, to corporate-controlled festival has provided awkward one would expect the management might be looking situations for Michael Eavis – from the difficulties to leverage its brand with, for example, further events. with establishment figures who felt the event was out Yet, the comments of Michael Eavis suggest not only of control to the demands of counter-cultural groups a lack of clarity about the target audience but also such as the travelling hippies. However, along the way, concern over whether it can persist. Furthermore, the festival has maintained its aim of supporting charities Eavis seems nervous about the festival’s appeal to like CND and, later, Greenpeace, Oxfam and a number artists who have lots of opportunities to make appear- of local charities. In the mind of the audience, this ances over the summer. Audiences and artists are helps position the festival as a fun event with a social the two key factors that underpin financial success at conscience. The continued expansion and shift in these events, as successful festival promoters are management of the festival has freed Michael Eavis well aware.

to be the figurehead for the event and to pursue the Sources : The history of Glastonbury is charted on its website original social mission of the festival. (http://www.glastonburyfestivals.co.uk/history ) while ownership and Given this growing and increasingly competitive finances are available through Companies House. market, there is much to consider for the festivals Most of the background to the festival and related market has been drawn from online news resources such as the BBC, Times Online and involved. In recent years, Glastonbury has sold all its the Guardian , or industry magazines such as Music Week . tickets and made donations to its favoured causes, More information on UK Festivals is available from Mintel. confirming the financial viability of its current busi- ness model. Indeed, the festival’s iconic status has traditionally meant that it is a rite of passage for many young music fans. Yet, in 2008, Eavis publicly registered Questions concern over the age of the Glastonbury audience 1 Sticking to the 35-word limit suggested by suggesting that selling tickets by phone would help Collis and Rukstad in section 1.2.3 , what attract a younger audience. Maybe Eavis was concerned strategy statement would you propose for by comments such as those in The Times newspaper the Glastonbury Festival? that cruelly declared Glastonbury as suited to the ‘the 2 Carry out a ‘three horizons’ analysis hip-op generation’ and questioned whether young ( section 1.2.1 ) of the Glastonbury Festival, in people thought it was ‘cool’ to go to the same music terms of both existing activities and possible events as their parents. On the other hand, their parents future ones. How might this analysis affect belong to the ‘baby boomer’ generation that grew up their future strategic direction? with popular music and festivals like Glastonbury. So, 3 Using the headings of environment, strategic there is no real surprise that they would enjoy this capability and strategic purpose seen in eclectic event. Whatever disturbed Eavis, he announced section 1.3.1 , identify key positioning issues that Jay-Z, an American rap artist, was to headline in for the Glastonbury Festival and consider order to help attract a younger audience. With sales their relative importance. slower compared with previous sell-out years, he later 4 Following on from the previous question and stated ‘We’re not trying to get rid of anybody. The older making use of section 1.3.2 , what alternative people are fantastic, but we do need young people strategies do you see for the Glastonbury coming in as well.’ Then, reflecting on the 2008 festival Festival? in 2009, Michael Eavis displayed concerns over the 5 Converting good strategic thinking into future of the festival saying ‘Last year I thought that action can be a challenge: examine how maybe we’d got to the end and we’d have to bite the the Glastonbury Festival has achieved bullet and fold it all up. A lot of the bands were saying this by considering the elements seen in Glastonbury had become too big, too muddy and too section 1.3.3 . horrible.’

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